CREDIT INSURANCE question...

gabriellenlewis

A customer is overdue paying a company £86400. CI insures 80%. How much can be claimed, how much needs to be provisioned for and how much reclaimed VAT?

I would have though 0.2 x 86400 (£17280) = VAT
then 86400 - 17280 (£69120)
69120 x 0.8 (£55296) CI claim
69120 - 55296 (£13824) Provision
???

Apparently answers are:
CI claim £57600
provision £14400
VAT £14400


Pleases explain, thanks.

Yalda20

Hi there,

The question above does not specify if the amount 86,400 is VAT inclusive so I would assume it is to get the answers you have got. Sorry the pound sign doesn't work on my pc so I will be putting the figures without it.

86,400/1.2=72,000 in here you are taking out VAT. Remember that an insurance company will not pay the VAT. you have to claim the VAT back from HMRC.

86,400*0.8=57,600 this is the 80% that you are claiming back from the insurer

The total amount of 72,000 which is excluding VAT, minus the 57,600=14,400 this is the amount for provision.

VAT - this is the amount you will need to collect back from HMRC. There is a few ways to work this out but I like to do it the long way so:

Take the gross amount which 86400-57,600-14,400=14,400 this is the VAT amount you need to claim back.

I hope this is clear. Thank you.

gabriellenlewis

> @Yalda20 said:
> Hi there,
>
> The question above does not specify if the amount 86,400 is VAT inclusive so I would assume it is to get the answers you have got. Sorry the pound sign doesn't work on my pc so I will be putting the figures without it.
>
> 86,400/1.2=72,000 in here you are taking out VAT. Remember that an insurance company will not pay the VAT. you have to claim the VAT back from HMRC.
>
> 86,400*0.8=57,600 this is the 80% that you are claiming back from the insurer
>
> The total amount of 72,000 which is excluding VAT, minus the 57,600=14,400 this is the amount for provision.
>
> VAT - this is the amount you will need to collect back from HMRC. There is a few ways to work this out but I like to do it the long way so:
>
> Take the gross amount which 86400-57,600-14,400=14,400 this is the VAT amount you need to claim back.
>
> I hope this is clear. Thank you.
Thank you! I actually realised my mistake after posting!

Yalda20

great, when are you doing this exam?